When you invest in a bond, there is always the potential that the issuer could call the bond back before it matures. When this happens, you may be entitled to a call premium. This is an amount of money that the issuer pays to investors who own bonds that are called back. In this blog post, we will discuss what a bond call premium is and how you can receive one if your bond is called.
When you invest in a bond, you are lending money to the issuer for a set period of time. The issuer agrees to pay you interest on your loan and to repay the principal amount of the loan at maturity. However, there is always the potential that the issuer could call the bond back before it matures. If this happens, you may be entitled to a call premium.
A call premium is an amount of money that the issuer pays to investors who own bonds that are called back. The size of the call premium will depend on a number of factors, including the terms of the bond and prevailing market conditions. Generally speaking, though, the longer you have been invested in a bond and the higher interest rates are at the time of the call, the larger your call premium will be.
If your bond is called, you will receive the call premium in addition to any interest that you are owed up to that point. You will also get back the principal amount of your loan. While getting a premium may not be what you had originally planned for when you invested in the bond, it can still be a nice windfall.
If you think there is a possibility that your bond might be called, it is important to monitor market conditions and keep track of the Bond Call Protection feature on your Bond Ladder. This will help you to know when a call is likely to occur and how much of a premium you might receive if your bond is called.
This is just one of the concepts covered in the FINRA SIE Program! Want to learn more? Check out Achievable’s SIE prep course to learn more!